Tuesday, June 05, 2012

Fragility and Collapse: Slowly at first, then all at once

I have been predicting collapse for
over five years now. My prediction is that the USA will collapse
financially, economically and politically within the foreseeable
future... and this hasn’t happened yet. And so, inevitably, I am asked
the same question over and over again: “When?” And, inevitably, I
answer that I don’t make predictions as to timing. This leaves my
questioners dissatisfied, and so I thought that I should try to
explain why it is that I don’t make predictions as to timing. I will
also try to explain how one might go about creating such predictions,
understanding full well that the result is highly subjective.

You see, predicting that
something is going to happen is a lot easier than predicting when
something will happen. Suppose you have an old bridge: the concrete
is cracked, chunks of it are missing with rusty rebar showing
through. An inspector declares it “structurally deficient.” This
bridge is definitely going to collapse at some point, but on what
date? That is something that nobody can tell you. If you push for an
answer, you might hear something like this: If it doesn’t collapse
within a year, then it might stay up for another two. And if it stays
up that long, then it might stay up for another decade. But if it
stays up for an entire decade, then it will probably collapse within
a year or two of that, because, given its rate of deterioration,
at that point it will be entirely unclear what is holding it up.

You see, the timing estimates are inevitably subjective and, if you
will, impressionistic, but there are objective things to pay
attention to: how much structure is left (given that large chunks of
concrete are continuing to fall out of it and into the river below)
and the rate at which it is deteriorating (measurable in chunks per
month). Most people have trouble assessing such risks. There are two
problems: the first is that people often think that they would be
able to assess the risk more accurately if they had more data. It
does not occur to them that the information they are looking for is
not available simply because it does not exist. And so they
incorporate more data, hoping that they are relevant, making their
estimate even less accurate.

The second problem is that people
assume that they are playing a game of chance, and that it’s a fair
one: something Nassim Nicholas Taleb calls the “ludic fallacy.”
If you drive over a structurally deficient bridge every day, it could
be said that you are gambling with your life; but are you gambling,
exactly? Gambling normally involves games of chance: roll of the
dice, flip of the coin, unless someone is cheating. Fair games form a
tiny, insignificant subset of all possible games, and they can only
be played in contrived, controlled, simplified circumstances, using a
specially designed apparatus that is functioning perfectly. Suppose
someone tells you that he just flipped a coin 10 times and all 10
were heads? What is the probability that the next flip will be heads too?
If you think 50%, then you are discounting the very high probability
that the game is rigged. And this makes you a sucker.

Games
played directly against nature are never fair. You could say that
nature always cheats: just as you are about to win the jackpot, the
casino gets hit by an asteroid. You might think that such unlikely
events are not significant, but it turns out that they are: Taleb’s
black swans rule the world. Really, nature doesn’t so much cheat as
not give a damn about your rules. But these rules are all you have go
by: a bridge is sound if it corresponds to the picture in the head of
its designer. The correspondence is almost perfect when it’s new, but
as it ages a noticeable divergence takes place: cracks appear and the
structure decays. At some more or less arbitrary point it is declared
unsafe. But there is no picture in anyone’s head of it collapsing,
because, you see, it wasn’t designed to collapse; it was designed to
stay up. The information as to when it will collapse does not exist.
There is a trick, however: you can observe the rate of divergence;
when it goes from linear to exponential (that is, it begins to
double) then collapse is not far, and you might even be able to set
an upper limit on how long it will take. If the number of cement
chunks falling out of your bridge keeps doubling, you can compute the
moment when every last piece of the bridge will be in the river, and that
is your upper bound.

Still,
your forecast will be subjective (or, if you like, based on your luck
as a forecaster) because you are still just playing the odds. If you
measure that the deterioration in your bridge is linear (say one
chunk falls out per month) then you extrapolate that it will remain
linear; if it is exponential (2x chunks from the previous month) then
you extrapolate that it will remain exponential, and, if you are
lucky, it will. But the odds of it remaining one or the other are
strictly in your own mind: they are not predictable but subjective.
Calling them “random” or “chaotic” doesn’t add much: the
information you are looking for simply does not exist.

To
summarize: it is possible to predict that
something will happen with uncanny accuracy. For example, all empires
eventually collapse, with no exceptions; therefore, the USA will
collapse. There, I did it. But it is not possible to predict when
something will happen because of the problem of missing information:
we have a mental model of how something continues to exist, not of
how it unexpectedly ceases to exist. However, by watching the rate of
deterioration, or divergence from our mental model, we can sometimes
tell when the date is drawing near. The first type of prediction—that
something will collapse—is extremely useful, because it tells you how
to avoid putting at risk that which you cannot afford to lose. But
there are situations when you have no choice; for instance, you were
born into an empire that’s about to collapse. And that is where the
second type of prediction—that something will collapse real
soon—comes in very handy,
because it tells you that it’s time to pull your bacon out of the fire.

Let me
stress again: the process of coming up with such predictions is
subjective. You might reason it out, or you might base it on a
certain tingling sensation in the back of your neck. Still, people
like to theorize: some declare that the events in question are
random, or chaotic, and then go on to formulate mathematical models
of randomness and of chaos. But the timing of large-scale,
“improbable” events is not random or chaotic, it is unknown.
With regular, small-scale events statisticians can cheat by averaging
over them. That is useful if you are selling insurance—against
events you can foresee. Of course, a large-scale event can still wipe
you out by putting your reinsurer/underwriter out of business. There
is fire insurance, flood insurance (not so much any more; in the US
it is now underwritten directly by taxpayers), but there is no
collapse insurance, because there is no way to objectively estimate
the risk.

Plugging
in everyone’s favorite Yogi Berra quote: “Making predictions is
hard, especially if they are about the future.” Well, I beg to
differ: making predictions about the past is just as difficult. The
USSR collapsed unexpectedly in 1991, taking the “experts” by
surprise. The root cause of the collapse remains veiled in mystery;
the reason for the exact timing remains a complete mystery. Expert
Kremlinologists were geared up to bet on minor power shifts within
the Politburo, expert economists were entirely convinced about the
superiority of free market capitalism over a planned socialist
economy, expert military strategists could debate the merits of the
Strategic Defense Initiative (there aren’t any) but they were all
blindsided when the whole Soviet thing just folded up and blew away.
Similarly, most political experts in the US are confident in their
estimation of the odds that Obama will or will not be reelected in
November 2012; what they can’t give you is the odds that the
elections won’t be held, and that nobody will get to be president.
Mind you, these odds are not zero, and we can be sure that such a day
will come; we just don’t know when.

Experts
can make predictions only within their area of expertise. They are
constitutionally incapable of predicting when their area of expertise
will undergo a spontaneous existence failure. Not being an expert in
any of these disciplines, I knew that the USSR was going to collapse a
year or so before it did. How did I know? By watching carefully, and
by realizing that things can’t go on much longer in the same
direction. I am doing the same with the USA now. So, let’s watch
together.

*
* *

The US
Federal government is currently spending about $300 billion per
month. To do so, it “borrows” around $100 billion per month. The
word “borrows” is in quotes, because most of that new debt is
created by the Treasury and bought up by the Federal Reserve, so in
essence the government just writes itself a check for $100 billion
dollars every month. If this continues forever, then the US Dollar
will become worthless, so a push is on to get foreign central banks
to take on some of this debt as well. They can do that, of course,
but, seeing as the US Dollar is on track to become worthless, they
have been decreasing their holdings of US Treasuries rather than
increasing them. Nobody can tell how long such a scenario can
continue to unfold, so what one looks for in a situation like this is
signs of desperation.

Recently
there was a flurry of activity around China: Secretary of State
Hillary Clinton and Secretary of the Treasury Timothy Geithner, each
with a large retinue, went to China on a high-level visit, during
which the news coverage in the US was dominated by reports about a
blind Chinese activist who was kept under house arrest, from which he
escaped to the US embassy, and was eventually allowed to leave the
country and come to the US. Hardly anyone in China knows who this
person is, and the Chinese official reaction to demands that he be
released were, pretty much, “Okey-dokey.” (The fact that Hillary
seems to have given up on wearing makeup was considered newsworthy as
well.)

Why such a powerful smokescreen? What were they hiding? Well,
a couple of items of interest. First, it turns out that China
can now monetize US debt directly. That’s right, the ability to
print US currency is now distributed between the US and China.
There is a special private line between Beijing and the US Treasury, and
China can buy US Treasuries without going through any market mechanisms
or making the price public. Secondly, China
can now directly buy US banks. Back in the good old days attempts
by foreign powers to use US Treasuries to buy equity in enterprises
in the US was considered as akin to an act of war; nowadays—not so
much. Basically, Hillary and Timmy went to China and said: “Take our financial
system, please!” What they got is the financial equivalent of a
subcutaneous morphine pump: something they give to terminal cancer
patients, for continuous pain control. But what if it runs dry before
the patient expires? That would be painful, wouldn’t it?

The US
is bleeding money in other ways: wealthy individuals are moving abroad
and renouncing their US citizenship in increasing numbers, like so many
rats fleeing a sinking ship. A high-profile example is Eduardo
Saverin, one of the founders of Facebook, who renounced
his US citizenship prior to the ridiculous fiasco that was the
Facebook IPO. Congress is busy drafting legislation to stop this sort
of thing from happening, or at least make it a huge boondoggle from a
tax perspective. There is also a provision in the works to take away
people’s passports if the IRS decides that they owe more than
$50k. Somebody ought to do something! Is it not possible to renounce
your citizenship and buy votes in Congress at the same time? It
should be... In any case, we can be sure that what is now still a
trickle will turn into a flood. That is what I saw in Russia after
the Soviet collapse: the former Soviet elite lost all faith in the
system and tried to grab a chunk and run away with it. This pattern
continues to this day: once something collapses, it tends to stay
collapsed for a long time.

And
why wouldn’t you want to flee like a rat, if you happen to be one of the
many temporary millionaires who made a fortune in the US economy and
do not wish to lose it? The US financial system is broken, and by now
it is clear that it is not going to be fixed. Case in point: Jon Corzine, former
Senator, former Governor of New Jersey, former head of MF Global,
made some bad bets, then dipped into his customers’ accounts to cover
his losses. Is he in jail? No, he is still at large and has nothing to fear. Furthermore, he
is high on Obama’s campaign donor list. JP Morgan just reported a $2
billion trading loss (actually
more like $8 billion). Is anything going to be done about it? Of
course not! JP Morgan has a long and proud history of mismanaging
risk, be it by using preposterous mathematical models (Value at Risk)
or by having traders with nicknames like “the Whale”
spontaneously decide that they are God and go hugely “naked long.”
Since this was all done with taxpayer-backstopped funds (like other
big US banks, JP Morgan is on government life support) there was some
discussion as to whether the Whale was hedging, or betting, or
gambling (with public funds). But nobody even knows the difference
any more, and you can be sure that nobody will go to jail over this either.

And
that brings us to the political system. Are the politicians even
vaguely interested in reforming the financial system? No, they are
too afraid of it. The financial reform legislation, such as it
is, was drafted by the financial companies themselves and by their
lobbyists. The politicians would be afraid to go near it, for fear of
endangering their electoral campaign contributions. As long as
campaign funds are flowing into their coffers, and as long as none of
their banker friends ever goes to jail, they will remain unconcerned
about finance. What they are increasingly paranoid about is their own
physical safety. Both parties have repeatedly exhibited an unseemly amount of bipartisanship when it came to passing
legislation to compromise civil liberties, to increase social controls
and surveillance, and to take away their citizens’ rights. The 2013
national security budget promises to top $1 trillion. Again, the
parallel with pre- and post-collapse USSR is striking: the political
system there too was unreformable, hollowed out, and used for personal
advantage, as a private service to the wealthy and the powerful.
Criminals, such as Boris Berezovsky, ran for public office simply in order
to gain the immunity from prosecution that came with it. This pattern
continues to this day, especially in Ukraine: lose an election—go
to jail. Get reelected—and you can use the voters who didn’t vote for you for target
practice. Once a political system collapses, everyone strenuously
denies that it has, but then it tends to stay collapsed for a long
time.

What
does tend to change rather suddenly is commerce. If you have enough
financial and political shenanigans, high-level corruption and rule
of law going by the wayside, daily life goes on just like before, for
a while—until suddenly it doesn’t. In St. Petersburg, Russia, the
difference between the summers of 1989 and 1990 was quite striking,
because by the summer of 1990 commerce ground to a halt. There were
empty shelves in shops, many of which were closed. People were
refusing to accept money as payment. Imports dried up, and the only
way to procure sought-after items like shampoo was
from somebody who had traveled abroad, in exchange for jewelry or
other items of value. And that occurred in spite of the fact that the
USSR had a better overall business plan: theirs was: “Sell oil and gas, buy
everything.” Whereas the business plan of the US has come down to: “Print
money, use it to buy everything” (most consumer products, plus ¾ of
the oil used for moving them and everything else around).

The
imported oil is, of course, the Achilles’ heel of US commerce. The US economy
was built around the principle that transportation costs don’t
matter. Everything travels large distances all the time, mostly on
rubber wheels, fueled by gasoline or diesel: people commute to work, drive to go shopping, taxi
their children to and from various activities; goods move to stores
in trucks; and the end product of all this activity—trash—gets
trucked long distances as well. All of these transportation costs are
no longer negligible; rather, they are fast becoming a major
constraint on economic activity. The recurring pattern of the recent
years is an oil price spike, followed by another round of recession.
You might think that this pattern could continue ad infinitum, but
then you’d just be extrapolating. More importantly, there is a reason
to think that this pattern comes to a rather sudden end.

* * *

It is
something of a general property of things that things build up slowly
and collapse quickly. Examples of this sort abound (buildings,
bridges, dams, military empires, economies, supernovae...)
Counterexamples—things that appear suddenly and then slowly
decay—are harder to find (mushrooms and cucumbers come to mind, but
these are manifestations of an associated process of slow growth and
sudden collapse, the collapse normally occurring right after the first frost). Some
time ago it occurred to me that the symmetrical bell curve which is
commonly used to model global oil depletion, known as the Hubbert
Curve of Peak Oil theory, should actually be lopsided, like almost
everything else, but I lacked the math to illustrate this point.

Eventually Prof. Ugo Bardi came through with a wonderfully simple and
clear model, which he called the Seneca
Effect. Unlike other models, such as the original Limits to
Growth model, which, although vindicated, is too complex for most
people to grasp at a sitting, the Seneca Effect is simplicity itself.
This model initially includes two elements: a resource base and an economy. The
rate of development of the resource base is proportional to both the
size of the resource base and the size of the economy. Also, the economy
decays over time at a rate proportional to its size. Set up the
initial conditions, run the simulation, and you get a symmetrical
bell curve. Now add a third element, which can be variously named
“bureaucracy” or “pollution” or “overhead”: all the
inescapable requirements or inevitable side-effects of having an
economy. This element does not contribute to the rate at which the
resource base is developed. It also decays at a rate proportional to
its size. Divert some fraction of the resource flow to this element,
run the model, and out pops a lopsided curve: rising slowly, falling
swiftly: the Seneca Cliff. The larger the fraction being diverted, the more lopsided
the curve:

There
is one problem with this model: we don’t really know which elements
of the economy are productive (in terms of contributing to the rate
at which the resource base is converted into capital) and which ones are
non-productive and belong in the bureaucracy/pollution/overhead
bucket. When we look at the world, we see the two summed together and can’t tease them apart.
With this detail hidden from view, collapse becomes hard to see in
the aggregate: the people may be starving, but there is also a lot of fat bureaucrats carving up, roasting and eating each
others’ ample buttocks, so it all averages out for a while longer. But you
can still tease it apart based on the fact that certain things simply
stop happening. The progression to watch for is: things get bigger
and bigger, then suddenly stop.

An
associated problem is that the fraction of resources going to
bureaucracy/pollution/overhead usually starts out being reasonable (a quarter or
a third or so) but the closer the economy comes to collapse, the higher
this fraction becomes. We can observe this in the US: more and more
resources have been allocated to bailouts, make-work “economic stimulus”
projects and national
security; more and more pollution (and associated costs) from offshore oil spills and from the development of marginal,
dirty energy resources such as shale oil and tar sands. As the
productive part of the economy begins to fail, the bureaucrats grow
desperate but, being bureaucrats, all they can do is endlessly increase the
bureaucratic burden, accelerating the downward slide. Most people have
heard of Gorbachev’s glasnost' and perestroïka, but there was a third initiative, acceleration (uskorenie): the doomed attempt to get the moribund Soviet economy to perform better. It sent it into shock instead.

Things get bigger and bigger, then suddenly stop. Let us
look at the example of US retail. Once upon a time there was local
industry, which sold products through small shops. Over the course of
a few decades, the industry moved to other countries, mostly to
China, and the small shops were put out of business by department
stores, then by malls, culminating with Walmart, which practices
“slash and burn retail”: since most of what it sells is imported,
it empties the local economy of money, and is then forced to close,
leaving devastation in its wake. Walmart is now expanding in China, having finally realized
that it doesn’t work to sell stuff in a country that doesn’t make
stuff once that country is fresh out of money. In places where retail has
ceased to exist, the remaining recourse is Internet shopping, thanks
to UPS and FedEx. And once UPS and FedEx services become unaffordable
because of rising energy prices or unavailable because of unmaintained, impassable roads and bridges, local access to imported goods is lost.

Similarly
with US banking. Once upon a time there were small neighborhood banks
that took in the people’s savings and then lent it out to individuals
and businesses, helping the local economy grow. Over the course of a
few decades, these small neighborhood banks were replaced with a few
huge megabanks, which, after 2008, became, in effect,
government-owned. Once the megabanks close their local branches,
local access to money is lost.

Similarly
with global shipping. Once upon a time there were many small ships,
called tramp steamers, which were loaded and unloaded by longshoremen
at local ports, using block and tackle and cargo nets. Then shipping
became containerized, and moving cargo required a container port. Then the container ships became staggeringly
huge. Then, as oil prices went up, they had to resort to “slow steaming” by pulling
pistons out of their engines and going slower than the sailing ships
of yore. Instead of point-to-point trade, these giant container ships
can only operate within hub-and-spoke networks, with the spokes
provided by somewhat less energy-efficient trains and far less
energy-efficient long-distance trucking. These ships are now at the
limit of “slow steaming.” The next step is, obviously “no
steaming” at all.

Similarly
with medicine. Once upon a time there were family doctors—general
practitioners who made house calls, and neighborhood clinics.
Eventually these were replaced by megahospitals and giant medical
centers staffed with specialists, which, over time, became
unaffordable for the general population. The US is currently spending
over 17% of its GDP on medical care—an amount that is exorbitant
and unsustainable. Once this spending is curtailed, many of the
megahospitals will be forced to close. The population will, for a
time, still have access to WebMD and to mail-order drugs, and, in
case of serious illness or emergency, medical evacuation will remain an
option for those still be able to afford it.

The
state of the communications infrastructure in the US makes a
particularly interesting case. The US is now behind most developed
nations in access to the Internet. Many people in rural parts of the
US must rely on their cell phones for Internet access, putting the US
on par with such countries as Cambodia, Vietnam, Indonesia and the
Philippines. However, cell phone service is far more expensive in the US than in any of these countries. Given that most products and services are now available
mainly through the Internet, and that the Internet requires a steady
supply of electricity, the state of the electrical grid in the US
presents an even more interesting case. It is a severely overworked
network of aging transmission lines and transformer farms, some dating back to the
1950s.

There is over 100 nuclear power plants, which are growing old
and dangerous, but their service lives are being artificially
extended through re-licensing. There are no plans, and no money, to
dismantle them and to sequester the high-level radioactive waste at a
geologically stable underground location. If deprived of both grid power
and diesel fuel for an extended period of time, these plants melt
down à la Fukushima Daiichi. It bears mentioning that a nuclear
disaster, such as Chernobyl, is a particularly potent ingredient in
precipitating a political collapse. Since what is keeping a series of
such disasters from happening is the electric grid, followed by
diesel, let us examine each of these in turn.

With
regard to the electric grid, the incidence of major power outages has
recently been seen doubling every year. Yes, we are committing
the inductive fallacy by simply extrapolating this trend into the
future, but, given what is at stake, dare we not extrapolate? At the
very least, we would need to hear a very good reason why we
shouldn’t. The incidence of major power outages can only double so
many times before it’s time to start handing out potassium iodide
tablets and before wig prices shoot through the roof.

Unless,
of course, the diesel generators can be kept running continuously for the 15-20
years it would take to shut down, de-fuel and decommission all the
nuclear reactors and empty the nuclear waste storage ponds. Countries that lack
a reliable electric grid tend to rely on diesel generators. There is
currently a lot of pressure on diesel supplies, especially since
Japan took all of their nuclear generation capacity off-line
following the Fukushima Daiichi disaster, with high diesel prices and spot shortages in many
countries. Observing the increased incidence of power outages and
price spikes, many companies in the US have installed emergency
diesel generators, and are now finding that they run them even when
grid power is available, whenever requested to do so by the power
company.

Not
much of anything continues to operate in the US once the electric
grid is down. Earlier this year a central part of Boston where I was
working at the time (Back Bay) went dark because of a transformer
fire. For almost an entire week every business in the area was shut
down. Without power, there is no heat or hot water, there is no
pumped water, or, more frighteningly, no pumped sewage, there is no
air conditioning (which is fatal, through heat stroke, in places such
as Atlanta, Georgia, which often have 100% humidity coupled with
above-body-temperature summer ambient temperatures). Security systems
and point of sale systems stop functioning. Cell phones and laptops cannot be charged. Highway and subway tunnels flood and bridges
do not open to let shipping traffic through—such as barges loaded with diesel. Can we be sure that
diesel will continue to be supplied to all active nuclear power
plants even as everything else falls apart?

This
is usually the point in my talks when somebody in the audience pipes
up to say: “This is all doom and gloom, isn’t it?” To which I
say, “For you, maybe, if you don’t have any other plan except to
wait for everything to somehow magically fix itself.” You see,
building something that works takes a lot of time and effort. Things
stop working in a hurry, but making a replacement takes time,
resources, and, most importantly, stability. This can only be done
ahead of time, and doing so takes practice (by which I mean learning
from one’s own plentiful mistakes). If you wait until that last
moment when, in a spasm of horror, you suddenly think to yourself “Oh shit, Dmitry was right!” then indeed Doom and Gloom will be your charming new bunkmates. But if you start your
collapse early and get it over with quickly, then your chances of surviving
this are quite likely to substantially exceed zero.

And so, please don’t ask
me “When?”—do your own thinking! I’ve given you the tools you
need to come to your own conclusions, based on which you may be able to start your collapse early and get it over with quickly.

44 comments
:

Wow, you don't take prisoners with this one. An excellent post, serving as a good refresher/update of your previous statements, though I also note a slightly increased sense of urgency in your writing. The bridge analogy is apt, considering reports on the state of bridges in the US.

Your mention of power failures in US cities reminds me that modern-day health and safety regulations (in the UK at least) often means that businesses and public services can't operate unless everything is working fine, and certainly leave no room for improvising. I remember when parts of the UK were flooded in 2007, and the mega-water stations were overwhelmed and had to shut down, not only was there no running water in the county for over a week, but many local businesses and public transport were also not allowed to operate due to safety regulations requiring running water, when a few decades ago communities would have made-do and carried on as best they could (what we used to call the Dunkirk spirit, which is now practically banned). So as well as a faltering infrastructure, in the event of failure we are literally told to just sit and wait for things to return to normal.

Nice post, Dmitry. You're right that the system will be collapsing, but the question of "when" is certainly a tantilizing one. The Seneca model is useful in considering that all of this might play out rather suddenly. That's a troubling thought, as many of us unfortunately find ourselves beholden to the system for the foreseeable future. Case in point, I work a job to pay off student loans that I took out to qualify me for a job that would earn me enough to pay off the student loans. Talk about a vicious cycle.

I think there's too much risk to simply 'walk away' from this debt. I fear the powers that be - even under collapse conditions - will be able to hunt me down far longer than I'd be able to outrun them. But once I get square with the system, I'm going to load the family up into a nice boat and sail off into the sunset. I just hope it all times up ok.

A very interesting post. I think you're right about the increasing fragility of so many of our systems. I wonder if one of the mechanisms of the tendency toward sudden collapse could be found in an analogy with biological evolution. When environments change dramatically and suddenly, species that are highly specialized or have too narrow genetics often just go extinct. On the other hand, species that are either generalists or at least have a reservoir of internal diversity are in a position to adapt, re-tool and survive. All the examples you describe are ways in which we've mercilessly removed diversity and resilience from our systems -- leaving them prone to sudden and irrevocable collapse.

Joseph Tainter, in his "Collapse of Complex Societies," concluded with the thought that because the world is now full of complex societies, they would all have to collapse together. Otherwise, they would just limp along propping up the status quo, with one complex society filling the void as another went under (ie, if USA failed, China would simply fill the vacuum). However, in 1988, the world economy was not as monolithic as it is now (or incestuously intertwined), so maybe that scenario isn't so farfetched.

The non-symmetric collapse model that requires "pollution" or "bureaucracy" as the extra factor brings to mined John Greer's model of catabolic collapse. He lumped these factors into "maintenance" of the existing infrastructure. You had growth when "maintenance" was a small fraction of economic surplus, collapse when "maintenance" required all of your economic activity. You can recover to the point of growth again only by shedding infrastructure - sort of the definition of collapse! This is a surprisingly simple and intuitive way to understand what we have gotten ourselves into.

The overall theme, and esp. the first part of the essay, makes me think of Arches National Park, in Utah. In 2008, one of the largest natural sandstone arches in the park suddenly collapsed. Of course, the process had been going on for tens of thousands of years, and the evidence was all there below the arch, in the form of boulders and rocks that had fallen from above. (One lovely night in the Utah wilderness some years ago, I laid out in the open in my sleeping bag, surrounded by huge boulders at the base of an enormous cliff. I thought, where did these come from? Then, I looked up.)* The same forces that make the arches also destroy them. They are there for untold ages, and then - all at once - they're not. You might hear some rumbling, if you're in the vicinity, hours or minutes before it all comes down.

What's that rumbling I hear now?

*BTW, I didn't move from my spot, and slept reasonably well. Hmmm… This fact would seem to illustrate another of the points Dmitry makes here!

Even your website provides some unintentional irony. At the end of the comments, the ad I'm served is for a massage school. It touts a quote from Bloomberg that massage therapy is a top career for 2011. Wal-Mart really has cleaned us out.

"Observing the increased incidence of power outages and price spikes, many companies in the US have installed emergency diesel generators, and are now finding that they run them even when grid power is available, whenever requested to do so by the power company."

A few years back, while Enron were looting the California energy market, a local hospital fired up it's standby generators on the request of the local power company.

The limit to slowing ships down is when the reduction in fuel costs equals the increase in demurrage (daily fixed operating costs, financing, depreciation, maintenance and salaries) due to longer transit times. After that either freight rates go up, or if the market won't bear that, you go out of business.

More likely, as in the 2008 financial crisis, the limit will be reached when banks aren't willing to issue letters of credit. The subsequently idled tonnage will tend to depress freight rates, which will stop oceanic shipping before the meeting of fuel costs vs. demurrage would.

Well said. Sometimes I come across something that seems to be written from my own head, except that the vague fog of ideas in my brain are crystal clear in what I'm reading. This was one of those times.

I am thinking of saving this post for some of my work mates who seem fixated on Biz-as-usual...would it be a "revolutionary action" of telling the truth,when all we hear are the buy,buy,buy lies of the consumerist propaganda machine?That machine,seems in spirit,much as the communist propaganda machine of old soviet state[may it RIP]. Yours is the best read on the impossibility of this system continuing,as well as the impossibility of saying exactly when it will collapse

At some point in the future,a inflection point will be reached here,and the future many of us imagine will take undeniable shape.Till then,its a matter of keeping ones head out of the authorities scopes,as well as the eyes of whom ever the next gang that will form.People form tribes.It seems wise,at this point to see what tribe YOU will belong to. Hows your network? Can you get your car fixed,your baby set,and your clothes washed&mended for favors and trades or do you still need lots of money[grease]to get you by?How much food do you grow?How much could you?How much REAL security do you have?[5 points for the shotgun in the closet,if you have a least 200 rounds,and know how to use it,and much more important WHEN to use it]These will be the measures of wealth soon..

Two days ago our Prime Minister, Stephen Harper (look it up if you don't know who he is) not known for drama said that the EU needs to get it together before the Greek elections, June 17, because the world economy is hasn't much runway left. What are the chances of that?

>> An associated problem is that the fraction of resources going to bureaucracy/pollution/overhead usually starts out being reasonable (a quarter or a third or so) but the closer the economy comes to collapse, the higher this fraction becomes. <<

From my European perspective, the EU bureaucracy is an instance of overhead that won't last the collapse. I sincerely hope so, and am always surprised to see so many people cheering every proposal to enhance its powers still more.

What I especially liked in the above quote is the synonymity of bureaucracy, overhead and pollution. Rightly so! The EU, the ECB and all other connected acronyms are pollution. Thanks to you and Ugo Bardi for making the connection.

Mike Shedlock ("Mish") has an interesting chart up at his blog showing the three month, March-April-May oil and gas usage going back to 1993. The chart history shows that petroleum usage has declined to 1998 levels, and gas usage to 2002 levels. At the bottom of that post is a link to another Mish blog post reporting that oil tanker usage has plunged to 1996 levels. Link: http://globaleconomicanalysis.blogspot.com/2012/06/3-month-petroleum-usage-chart-for-march.html

I have discovered Peak Oil in 2005 and ever since then diverted most of my energy toa) establishing a lifeboat: www.CottageFarmOrganics.co.ukb) alerting my community: www.TransitionNC.organdc) trying to break our little bit of UK (Cornwall) away from the most indebted country on Earth (UK) before its collapse: www.mebyonkernow.org, the party for Cornwall doinf its best to obtain independence for Cornwall.

Small country producing most of its own food and capable of producing lot of renewable energy, construction materials, even clothing, will have a much better chance of maintaining some kind of standard of living and perhaps preserving the good bits of civilisation and the collapse of the UK, most of Europe, USA and threfore also China and the rest of the brics. Even Saudis will collapse when their income stream reduces to trickle and when there will be nobody left to supply their every need (although this last item may be wishful thinking, given that oil will probably always be in demand whilst it can still be pumped out)

Nowadays I am glued to TV news and watch with morbid fascination the collapse of a civilisation. Its like being an extra in a sci-fi movie.

I have learned several times now what life is like when the electrical grid goes down during ice storms here in Kentucky. What we consider "civilization" basically stops, and if the roads are blocked by fallen trees, then it becomes just like the Dark Ages.

Priorities shift quickly. A fire is the first priority, followed by a supply trail from the woodpile to the house. At night, candles and solar lights are lit.

When the gaslines stop, the fireplace doubles as a cooking area, and nearly all activity occurs around the fireplace. The rest of the house sinks into a deep freeze, and remains so all winter without additional fireplaces.

Individual bedrooms become impractical, as freezing to death is not a practical option. Beds are shared by an entire family -- including the dog.

Having survived several of these weeklong events, I know what to expect and what I will need, but I still wonder what I will do about the unheated rooms. I recently saw a military style pipestove that can be folded up into a box. It could be used as a heater in a room after cutting a hole in the ceiling to vent the smoke from the tall, stackable pipe chimney.

None of my neighbors made any attempt to scale down to survive the ice storms. They all ran for their cars, or called paramedics. One of my neighbors used the exhaust from her car engine to heat her home through a window. I watched in stunned amazement.

The last ice storm blew the entire city budget, and many areas could not be reconnected. People froze. I cannot see too many more all-out efforts to restore the power until there is just nothing left to do it with.

When the inside of your home is 35 degrees, you cannot survive without a fire, thermal clothing, and some food and water for very long. My wife finally understands this, so she tolerates my hoarding.

Dmitry, no question this is one of your better posts, a stunning right between the eyes, with humor. Too bad it won't make it into (the first edition) of your book "Absolutely Positive". (A great book title, BTW, for someone who gets accused of being gloomy in outlook. Is this Russian sarcasm, or did you acquire it in America?)

Since you brought up prediction, and posted a graph of apparently exponential blackout frequency in the USA over time, one wonders about the "effective rate". IOW, at what doubling time is the frequency of incidence of individual blackouts enough to produce one or more that entirely cripple the system? Most will agree it is a worrying trend, like the incidence of nuclear reactor meltdowns over time, spotty as these data may be (American sarcasm).

Even if the grid power system fails completely, perhaps it can be restored in short order to most parts. The underlying ability to repair the system is what is in question, not the desirability. Is that ability dependent upon the availability of diesel fuel or some other component, like the speed of effective repair, that might in turn be affected by the weather (climate change) or number of road potholes or bridges not patched or repaired for lack of funds? Surely the military must know, and likely hold the trump cards.

You are correct about the timing of prediction, but it sure is fun trying to elucidate an accurate one. Adds some excitement to an otherwise dreary endeavour.

"Experts can make predictions only within their area of expertise" or as Dan Gardner explains in his book "Future Babble", quite the opposite! (experts in their field are generally more wrong than chimpanzees)

To restore the electrical grid, the trucks and workers must first reach the main transformers, which are usually in a remote area and covered with ice. To get there, they need work crews to clear the roads. This takes days.

Nothing can be done before the damage to the main generator base is repaired. It is like the center of a wheel, with spokes going out in all directions. The spokes can be undamaged, but are useless until the center is fixed.

After the central power center is repaired, then the main lines (spokes) are repaired. Again, more days go by and more roads must be cleared. After that, the branch lines running down the streets are fixed one at a time.

If the main transformer farm cannot be repaired or reached, then nothing else matters. It is not like the internet. There are no bypasses using multiple servers and satelites in different locations. It's a straight line.

It was never upgraded, and it forms the base for the internet and all forms of transportation that do not involve animals or off-road vehicles.

I believe the electrical grid is the fatal weakness of America, as Dmitry has pointed out. Even gas furnaces are controled by electrical circuits now. No more pilot lights and matchsticks.

Excellent reading, as ever. Just after perusing this essay I returned to my study of steam power, thinking of how I could convince my Indonesian friends of the imminence of collapse. I was fortunate enough to come across this very positive blog on small steam engines: http://www.mikebrownsolutions.com/index.html

Let us give a name to those poor creatures that cannot think on their own because they are too much brain washed by main stream media. Those that need facebook to have friends, commercials to know what to buy, corrupt govts to tell them what is good for them etc. What about "zombie" or "drone" or "android".

Doctor, I wonder how many mechanical devices you've built, maintained or otherwise cared for in your adult life. It's been at least 50 or 60 years since American mechanical manufacturers had any sense of longevity in their designs or builds. I am pretty sure we can thank consumerism for that fact. "Upgrade" is favored over durability; a durable product that one "upgrades" with a "superior" (flashier) model causes pangs of veiled regret over throwaway attitudes -- but the regret never triumphs, the upgrade always wins. Eventually the consumer wants what dies early, because it will be "upgraded" well before it ever could possibly wear to the point of needing maintenance. Lifespans are now 1-2 years when they used to be 10x that, if not more.

As suggested in the primary essay, this holds as well for the building industry -- infrastructure, office buildings, dwellings all are built today as if they'll be razed in a few years.

In this context it's a bit naive to think that if a generator fails, it's just a simple point of a generator mechanic repairing it.

Nice one Dimitri! I've made similar points about the fragillity of nukes in the absence of electric grid power and deisel supplies. Not pretty, and at most you have a week from power failure to running out of standby power; then melt out and bang goes the neighbourhood.

I've written to SecGen UN, and our Prime Minister and Japanese Ambassador on this; no result of course.

With oil supply; as oil exporters like Russia and Saudi Arabia increase their internal oil consumption, and the big oil importers like USA,China,Japan, Germany and India grab more of what remains, there are about 140 small oil importing nations that could suddenly get no oil within the next couple of years as the Global Net Oil Export lid descends. It will be sudden, and sooner than we expext. And it will not be pretty.

Great post and very prescient. World events do foretell that that wheels are coming of civilization as we have known it. Collapse seems to be getting closer everyday. You woke me up when you mentioned people fleeing the country. I decided to do this four years ago and completed my relocation to a small fishing and farming town in Mexico last October. Now I am trying to move my assets into productive small local business investments in Mexico - hopefully making life more pleasant when the crash occurs.

If I may, the problem I see is we (or at least most of us on this site) recognize that the timing of the collapse cannot be ascertained, yet we are all still predisposed to think that that the collapse will be "soon".

Is there ever going to be a time when we think it will not be "soon"? If it hasnt all collapsed in 2016, will we still be thinking it is "soon"? In 2021? 2030? 2045? Death?

Is there ever a time when we can get out of crisis preparation mode, or are we (thanks to this lack of timing and our predisposition to think "soon") destined to be on a state of high alert til the day we die?

Growing up, there was a guy in the area who really didnt live much of a life because he was constantly preparing for the "upcoming collapse". Over time, he alienated friends, family, spouse, etc, with his preoccupation for preparing for the imminent collapse. This was back in the early 70s. As far as I know, he died in 2004, alone, destitute, really not much of a life to speak of.

And therein lies my fear as I see too much of myself in him. Each day, I see friends, family, etc, passing over Dimitry's crumbling bridge. Even the ones who know its crumbling are still crossing it each day, going out, living life, etc. -- while I sit there on the sidelines, afraid to cross it even once.

Will my bias towards thinking the collapse will be soon prevent me from ever crossing that bridge? Or will I die still waiting because the collapse did not happen in my lifetime?

Some of his contemporaries surely recognized the writing was on the wall for the Roman Empire when Emperor Diocletian started kicking the can in AD 305. Yet not a single one of them was alive to witness the collapse a full 170+ years later...

In my opinion, predicting a collapse method (and schedule) is all about the metrics. The simplistic bridge metaphor for collapse (either standing or not) really isn't a very good one to apply to a complicated system such as the United States.

Here's why. If someone were to look at say the death of a suburban shopping mall this fault is easier to see. When does an old shopping mall collapse? Is it when the mall's owners conclude occupancy is at a level that no longer covers operating costs? Is it when the mall finally closes it's last store? Is it the date when some square footage of roof section falls due to snow load? How about when the remains are finally leveled by a bulldozer to build a new golf course? Depending on how collapse is defined, a "collapse" doesn't happen at a specific time at all! Rather, it's a process consisting of events that can be spread over decades.

So, one might ask,"Will the U.S. achieve somebody's definition of collapse soon?" Absolutely. It's already happened. Just ask somebody who's living on unemployment. Yet using different metrics, others may say the U.S. is OK or can at least muddle around for another hundred years even if the peak-oil and climate change doomers are correct. Maybe their definition is like mine. As long as the IRS is around, the U.S. is around.

In my opinion, using relatively loose metrics for defining collapse makes the analysis good only for identifying stages. Once the stages are identified, history can then be compared for similar scenarios. Even if a relatively good historical match can be found little more can be done to find the "when" of collapse since worldwide economic systems are very complicated. So, such an analysis is usually only good for setting general strategic direction. Still, analyzing collapse stages may be helpful when deciding on places to live, occupations to pursue and what capital should be built up first (both human and material).

As an example, one action I did in response to Peak Oil and Climate Change was to imagine stages of resource depletion using a milder form of Dimitri's stages of collapse. Then I biased that analysis on what I knew of my region and it's history. Finally, I decided my strategy would be to buy a small house with a fixed rate mortgage in a walkable community. Others may decide totally paid for wind powered water borne housing is better for their region. Who's right? Both? Neither? Only time will tell.

Speaking of obsolescence and the way things are made: I was very very sad this afternoon to give up my 1993 Saab 900s to an Italian dealer, for nothing—$0. It would have cost money to junk it (although it runs ok and has only 54,000 miles). That is how the system works in Europe: each year the insurance and taxes go up (not down) on older cars, and between culture, cartels and the tax authorities, the market for used goods of any kind is severely restricted, in large part to enforce a market for new goods. This car has an amount of intrinsic energy, soundness and quality of materials which are unlikely to be duplicated, has been a super solid ride with straight-forward construction which anyone could repair (no computer diagnostics required) and she loved to go fast on the freeways as well as assist with tough moving jobs (I could fit a three-seat sofa in the hatchback, which held much more than my husband's SUV). Supposedly the Neapolitan dealer has a collector friend who wants to restore it, and I wanted to see it go to a "good home" rather than have her end up in the crusher. My swan-song drive was bittersweet, and I reflected long and hard on what it meant to have commanded a vehicle of her kind, what it meant to fuel it, how casually lucky I had been to experience the peak of cheap oil availability, the open road, the wind in my hair (on two continents, even!), trying to convince myself that I was doing the right thing in abandoning "happy motoring". Knowing it was the right thing to do but having it go against everything I had ever been raised to believe and to value.

@Corey, I think you have to make life on your side of the bridge worthwhile no matter what.

@Corey; if we constantly live in a state of regret about our chosen path, it will do us no good at all. We should not see ourselves as ‘running away’, or ‘rats leaving a sinking ship’.

As The One Straw Revolution’s Fukuoka correctly observed: “The ultimate goal of farming is not the growing of crops, but the cultivation and perfection of human beings.”

So as we each go to our own self-defined futures we need not compare where we are with where those who remain behind are; we need not worry about what pieces of this current unsustainable lifestyle we may be prematurely doing without.

Our purpose is to move to a new way as soon as possible, configured as best we can to meet what we each believe is the near future of our place. And there we shall strive to find contentment and peace; and perhaps (if it matters) to watch with interest as events unfold.

There are multiple collapse plans out there but this one is easy for anyone in any community to quickly grasp and implement to ensure local social cohesion and supply chain continuity as collapse progresses:

I just completed a survey from the Democratic Party and told them why I wasn't participating this go-round: failure to address Peak Oil and Collapse. I told them that if there were a Collapse Party (DO's little joke), I'd join and work for their candidates. So ... Dmitry, why don't you/we start such a party?

The monitor finally stopped the comments after removing several at the end. It was getting nastier all the time. Note that the last comment allowed was from an employee of the Nuclear Regulatory Commission. But it was by no means 'nuff said'.

Have you considered the risk of a great scale failure of electrical systems caused by a solar megastorm? Do you know this threat? Its possible effects on creating hundreds of Fukushima-Daiichis are very serious.

I'm envious to those who are speculating. It is here in rural poverty-stricken towns in Oklahoma. Weaker areas such as ours are already feeling the effects in unaffordable utilities, no cash and rising costs (stagflation). Many are without A/C in triple digit heat. Many, like us, are cooking outside over a fire. many, like us, are educated and fully capable but are now living in a 3rd world country with rising corruption amongst city and local officials surviving upon the existence of the residents. It's here. Stop speculating and start working as sustainability, start changing before it is too late. Get rid of your cars, your debts and all your ties exactly as Dmitry advises. Lose the dependency NOW.

Pepole relay on numbers, figures and scientific facts wich are unbreakable. (or it seems to be unbreakable) This is the law of educated persons. We want to estimate, calculate, derivate in a bullet-proof way. So it is unacceptable to make an estimation without strong figures, numbers etc. of evidences. We are unable to see the simplest connections trough this religion. And what do we do routinely in our job? We make charts figures and tabular data to confirm our foggy visions for the superior... But we forget a simple thing -which can not be deny- nobody can estimate the exact time of death of the simplest living organism.